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The secret sauce behind Gobi's high hit rate

By Goh Thean Eu March 25, 2016

FOR Gobi Partners, one of China’s first homegrown venture capital (VC) firms, its ability to take advantage of new technologies has been a key factor in its success.

The first Chinese VC firm to expand into the South-East Asia has to go through about 1,000 business proposals every month, on average.

“When you see so many business plans coming in … reading them isn’t easy,” said its cofounder and managing partner Thomas G. Tsao (pic).

Because of the sheer volume of information it receives on a regular basis, the company decided to build up its IT system about five years ago.

“Gobi has now evolved into what we would call a data-driven company ... we have seen tens of thousands companies come through our system,” said Tsao.

“So over the past five years, we built up our IT system to track and analyse that,” he told Digital News Asia (DNA) on the sidelines of the launch yesterday (March 24) of its joint Asean SuperSeed venture fund with Malaysia Venture Capital Management Bhd (Mavcap).

As part of its efforts to track and analyse trends, the company has adopted a big data analytics (BDA) solution that looks at various aspects of its business.

“I don’t want to give out too much, because then my competitors will start doing the same thing. One of the easy things we are doing is natural language processing,” said Tsao.

When Gobi receives business proposals, its BDA solution will pick up and track certain keywords and phrases, and will alert users when a particular keyword is ‘trending’ or found in many business proposals.

“You can start creating this heat map, so that when a particular word is trending, you can try and determine if it is a sign of the beginning of a trend, or if it is being over-invested,” Tsao.

“For example, one of the words we saw with a high frequency in China was O2O (online-to-offline). It was appearing in all business plans – but what does that represent?

“The machine can tell you which keyword is trending – but as to what type of conclusion you can draw, that depends on humans,” he added.

High hit-rate

Gobi, formed in 2002, is no stranger to exits. In fact, its hit rate (comprising exits and up-financing) is 52%, which means that slightly more than half of its investments have been successful.

Today, it has seven offices across China and South-East Asia, and manages about eight funds. Its portfolio companies, collectively, have annual revenue of over US$2 billion. These startups include Qraved, Tripvisto, SimplyGiving, IAHGames, and Aptoide.

While the BDA solution has been useful, Tsao believes that there are other factors that have helped make the company the success it is today.

“I think it starts by you seeing as many companies as you can, because the more companies you see, the more entrepreneurs you will meet – and you can start to understand and identify the characteristics that make those entrepreneurs successful.

“Even though we see about 12,000 business proposals a year, our investment rate is only like 1%. We are very selective. To get funded by Gobi is even more difficult than getting into Harvard,” he declared.

Another success factor is the company’s investment stance and how it constantly looks at ways to help its startups grow to the next level.

“Early stage VC is not a spectator sport. We are not passive investors. We have a large network, so our job is not only about finding the best entrepreneurs, but also about supporting and helping them,” said Tsao.

“One of the key measurements of success is how we can help you get from a seed round to a Series A, or from a Series A to a Series B.

“In the VC field especially, it takes a village, it takes many people to help a company become successful. We believe in that. The more help you get, the higher the chance of you becoming successful,” he added.

Of course, in order for that to happen, the entrepreneurs themselves would need to have faith and an open mind.

“We believe that the greatest entrepreneurs are the ones who are always learning, which means they are very coachable,” said Tsao.

“While they may have a strong belief and faith [in their product], they should also be very open to outside suggestions,” he added.